Court Rejects Claim That Lawyer’s Purchase of Debt Was in
Anticipation of Lawsuit

By SHERRI M. OKAMOTO,
Staff Writer

This district’s Court of
Appeal yesterday upheld a $2.8 million award in favor of a Pasadena attorney who had filed
a civil suit to collect on a debt he had purchased.

Div. Three, in an
unpublished decision, explained that Business and Professions Code Sec. 6129
could not be asserted as an affirmative defense to Surjit Soni’s efforts to
enforce the promissory note Tony Neman had executed to secure a residential
construction loan for a property in Beverly Hills.

The appellate panel
concluded that Neman had presented insufficient evidence to support a finding
that Soni’s purchase of the debt in 2007 from East West Bank was made “with
intent to bring suit thereon,” in violation of the statute.

Soni—who described
himself as an attorney, a developer, and a real estate investor—was the only
witness who testified at trial before Los Angeles Superior Court Judge Rolf M. Treu.

Bankruptcy Procedures

When he purchased the
debt, Soni said he knew it was approximately two years and five months
delinquent and the borrower, a limited liability company owned by Neman, was in bankruptcy. Soni
claimed he was “sufficiently familiar” with bankruptcy procedures and issues to
realize the property, located at 1124 Marilyn Drive, was “in a very good
secured position” and if the property itself or the assets of the bankruptcy
estate were more valuable than the note with its first trust deed and
guarantees then there was a good chance that a buyer of those instruments
would “get paid through the sale of that property in the bankruptcy” or by
resolution of the bankruptcy.

Since the property had
appraised for $7.8 million but the note only had an outstanding obligation of
$6.5 million, and the bank was willing to sell the debt for $4.5 million, Soni
said he did not think he would ever have to sue Neman because the property’s
worth was sufficiently ample to pay off the debt.

Soni and his wife later
purchased the property at a public auction non‑judicial foreclosure for
$5 million, leaving a deficiency on the note of over $2.9 million. Soni then
sued Neman to recover this
balance. Neman asserted Soni’s actions
violated Sec. 6129, which provides that “[e]very attorney who, either directly
or indirectly, buys or is interested in buying any evidence of debt or thing in
action, with intent to bring suit thereon, is guilty of a misdemeanor.”

Treu found there was no
evidence to support the defense because there was no evidence that Soni’s
purchase of the debt “was anything other than a normal business transaction by
a lender,” specifically noting the lack of any expert testimony that the sale
was “a particularly unusual transaction,” and “not one that a prudent
normally-intended investor would engage in.”

The defense was not
presented to the jury, which later returned a $3,479,434.53 verdict in favor of
Soni.

Writing for the
appellate court, Justice Walter Croskey disagreed with Treu’s suggestion that
testimony from an expert was necessary to successfully assert a defense based
on Sec. 6129, but agreed that Neman
had not set forth sufficient evidence to establish Soni’s intent to sue on the
debt he had acquired.

“[T]he fact that an
attorney purchases a debt and then is unable to collect on it without bringing
a civil suit does not, by itself, support use of section 6129 as an affirmative
defense to the suit,” the justice explained, noting “the case law history on
section 6129’s predecessor statute, former Penal Code section 161, shows that
our Supreme Court has impliedly recognized that the statute can be used as an
affirmative defense if it is ‘sustained by the evidence.’”

No Inference

In this case, Croskey
said, “what the evidence indicates is that a jury could find that even though
the real property appraised for $7.8 million, it was not certain that, from
their investment of $4.5 million, plaintiffs would realize the entire
$6.5 million dollars represented by the promissory note and its guarantees
when they decided to sell the real property.”

He reasoned “the
possibility of their realizing less than the $6.5 million does not support
an inference that the attorney plaintiff had the required intent to sue on
defendant’s guarantees to recover the deficiency” since Soni purchased the note
at a $2 million discount and might have been satisfied with “a more modest
profit from a sale of the real property than what a sale price of $6.5 million
would bring.”

Croskey emphasized that
yesterday’s ruling was intended as “a narrow holding to acknowledge both the purpose
of [Sec. 6129] and the need to apply the statute literally so as to avoid
precluding investors, who happen to be attorneys, from making investments on
which they may someday have to sue.”

Joined by Presiding
Justice Joan D. Klein and Justice Richard D. Aldrich, Croskey upheld the
judgment in favor of Soni, but directed the amount be modified to delete an
award of $655,306.99 in attorney fees since there was no evidence such fees
were incurred because of litigation under the promissory note.